Israel tax chief angered by 'national sport' of tax evasion

Eran Yaacov Photo: Jonathan Bloom

Eran Yaacov: Even though the tax burden in Israel is not high, people feel that tax evasion is justified.

In recent years, Israel Tax Authority director general Eran Yaacov has met many for whom the country made a large contribution to their livelihoods - education, a good childhood, a chance to flourish. When they grew up, made lots of money, and raised very wealthy families, they do everything to avoid paying taxes.

"I don't want to name names, but it's something that I see and can't understand. How can a person who has so much, then try at almost any cost to conceal his or her wealth from the country? There are people in Israel who have billions or hundreds of millions, and they do anything to keep from paying taxes. It makes me angry. The way I grew up taught me that when you have so much and some of it is from the country that enabled you to grow and succeed, the minimum that you can do is to return some of your ability to the place that gave it to you.

"It makes me angry to see people who don't give back, who evade taxes. I'm not talking about tax planning. Planning is legitimate; it's obligatory to plan. I'm talking about people doing it illegitimately, making an effort to find an illegitimate structure in order to evade paying taxes in the country that enabled you to flourish.

The tax burden in Israel

"It's a common factual and conceptual error to think that the tax burden in Israel is high, and that's part of the wrong justification of people in Israel for engaging in the 'national sport' of tax evasion. I really believe that the tax burden in Israel, with the geopolitical problems we have, the defense and other needs that they country has, and the expenses, is not high. The tax burden here, if you look at it as a proportion of GDP, is definitely in the middle, among the countries to which we compare ourselves. We're really not the highest. We're a lot less than that. In direct taxes, we're in the bottom quartile of the OECD.

"In part of the discourse in Israeli culture, someone who pays without an invoice or without VAT in a garage, or says, 'Let's do this and not pay the value of the use,' is considered legitimate. People in Israel give legitimacy to tax evasion. In the US, if someone knows that his or her neighbor isn't paying tax, they'll will make a face, because he or she feels that the evader is taking money out of his or her pocket. People in Israel forget that when they choose not to pay taxes, they're taking money away from everyone."

Globalization

"Over the past year, the Israel Tax Authority has been promoting a requirement for group information lists for Israeli residents who held overseas accounts before the period of automatic information exchanges from banking institutions in the CRS and FATCA framework (automatic information exchange agreements with the US and Europe, E.L.-W.). According to the Tax Authority's information, these Israelis did not report and did not legalize their capital in a voluntary disclosure process. The Tax Authority is dismantling the last bricks in the wall concealing unreported capital abroad.

"In personal conversations that I held with managers of the tax authorities at the FATCA conference that took placed recently in Chile, significant progress took place in the process of obtaining the group information, and with the Tax Authority's dealings with taxing the digital economy. The consequences of globalization and cooperation were clear to all of us. The public also understands that the ability to conceal money in all sorts of anonymous accounts in anonymous countries is already almost impossible. It's become very, very difficult. Has the Tax Authority been left with nothing to do? Of course we have things to do. There are still entire regions, including in the Israeli economy, in which paying taxes is considered an inessential nuisance. There is no realization that part of the state's ability to continue existing and succeeding also depends on people paying true tax. So there's quite a bit left to do, and we're going all out.

"It starts with all of the arguments that we have with all of the mega-companies, such as Google and Facebook, from which it's hard for us to collect tax for their activity in Israel. The companies raise all sorts of arguments that they have no fixed institution here, but we're dealing with it. There are entire sectors in which people choose not to pay tax as a matter of conviction and general outlook. It's no secret in which sectors tax paying ethics are poor and there are more payments in cash, for better or worse. We operate in them, and will continue to do so. When we come to do audits in these sectors, they jump all over us, and we find ourselves facing mobs and violence, so that we need an escort from the riot police or the army. This makes me very sad.

Tax collection in 2019

"I'm not afraid of 2019 (Yaacov is talking about the disappointing tax revenues this year up until now and the prediction that the Tax Authority will not meet the tax collection targets set, E.L.-W.). We finished 2018 well and exceeded the target. I agree that 2019 is a challenge, and this challenge must be met, but things should be taken in proportion. I think that the target set for us does not reflect our current tax collection capability, but we'll meet it.

"When they tell us, 'Collection is disappointing,' I ask myself what disappointing means. Tax collection depends on the economy. I can be a world champion, a magician, but in the end, a large part of collection depends on the economy, on foreign trade, exports, and growth. The more growth there is and the more exits, the more tax revenues we'll see from it. If we have a better tax payment culture and there's less unreported capital, we'll collect more.

"Another reason that we'll collect more taxes is that using advanced technology, we'll reach those who don't pay taxes. We're developing technological capabilities that will be among the best on earth."

"Globes": Maybe Minister of Finance Moshe Kahlon cut taxes too much in the past two years, and now you have a problem filling the state treasury.

Yaacov: "Some of the tax cuts were correct by definition. There's no reason why we should pay purchase tax on a mobile telephone. There is room to make changes in the world in the composition of taxes, and if we do it right, we can also cope with the challenge of 2019. It can be a tax imposed on fruits and vegetables, and continuing to tax economic cooperative and advertising companies and online companies, such as Google and Facebook, and high-level companies that make it very difficult for us to collect taxes.

"We have a lot of ideas, and I hope to apply them when a new government is formed. For example, I think that we have to think about eliminating the tax exemption on income from rent. There will be a government, there will be a new minister or a new-old minister, and these things will be raised. We will raise our concept, but in the end, the minister will decide. I can advise and fight for my opinion up to a certain point."

Published by Globes, Israel business news - en.globes.co.il - on April 21, 2019

© Copyright of Globes Publisher Itonut (1983) Ltd. 2019

Eran Yaacov Photo: Jonathan Bloom
Eran Yaacov Photo: Jonathan Bloom
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